Pricing expert stresses need to globalize wireless

Hermann Simon

As the mobile phone market continues to decline worldwide, the next battle in wireless will take place in emerging markets, according to Hermann Simon, chairman and founder of global marketing and strategy consultancy Simon-Kucher & Partners. The firm is holding a strategy forum this week in New York and San Francisco to discuss ways for companies, including telcos, to employ smart pricing strategies in today’s challenging economic climate. Simon spoke with Telephony about the strengths and weaknesses of different mobile players as well as the need for all to think globally.

On why going global is vital: I think the whole game of globalization will be very important, particularly in the market for devices more than the market for telecom services. There, of course, Nokia (NYSE:NOK) is the only truly global company in that regard…This remains a challenge for Apple (NASDAQ:AAPL) or BlackBerry (NASDAQ:RIMM) and for Palm (NASDAQ:PALM) to build global market positions. Apple is closest to already being a global brand, but it’ll be about really penetrating these new markets, which will become more sophisticated. They are a little retarded by the downturn, but the trends remain. In two years from now, the smartphone market in China will be two times the size of the United States. The battle is not decided there yet.

On why prepaid will outlast the recession: One of the big issues is that people are avoiding risk. People are afraid of losing jobs, so they are reluctant to go into any kind of commitment where they have to pay a fixed amount per month or uncontrolled expenditures, so prepaid will increase in response to the crisis. We see that in many other markets where people seek alternatives with less risk and control over the total expenditure. It’s a good example of this kind of risk aversion and consumers’ response to the crisis.

On why cutting prices isn’t always smart: Consumers’ resistance to buying is difficult to overcome by cutting prices through discounting. If you cut prices enough, that means that your margins are getting very, very low. My advice is to avoid strong discounting, strong price cuts, and rather give discounts in kind. Instead of cutting prices 20%, give more minutes or some additional services or product features or adds-on for free. It has several advantages with regards to the recovery. You do not destroy the nominal price level. If you destroy the nominal price level now, it’s very difficult to get back once we recover. Second, you get more volume if you add-on additional features or more minutes or time or free MMS or whatever. Third, the perceived value by the customer is higher than the cost to you.

On why Nokia is no Ferrari: With all the new smartphones, the Palm Pre, the iPhone, coming to the market, I don’t see a realistic chance for Nokia in the US market to make an inroad with its N97. I compare that to the automotive market. In the automotive market, you have at the upper end Ferraris or Porsches, then you have a mass market that is very large, where you can be successful, Toyota. Toyota is Nokia, and it’s not going to compete with Porsche or Ferrari. It will compete with Mitsubishi and BMW, but not Ferrari. I think that’s very smart of Toyota, and the same applies to Nokia. The growth in mobile devices is coming from the emerging markets, 80%. The smartphone segment is relatively small in numbers though high in value, but it’s a different game.

On the iPhone failing to deliver: The iPhone [3G S] may have problems. It’s not sufficiently different from the old one. Obviously expectations were higher, but expectations were just met. If you want to state the position as being the one and only, you have to deliver on that.

On if Palm should lower the price of the Pre: It is still okay to enter with a relatively high price to skim the cream, but it’s unlikely prices will remain at this level. If there are bottlenecks in manufacturing – not of one to three weeks but of months that the product is not available, then they could keep the price up. But if there are no bottleneck capacities, prices will go down relatively quickly. The other point is that, in order to keep a product exclusive to keep a high price, you have to limit the capacity. If someday everyone has an iPhone or Palm Pre, which will not be the case, then the product loses its exclusiveness, and people are not willing to pay the high price. Again, like cars, find the right volume; don’t try to maximize the volume. If Palm this year sells the optimistic number of 1.3 million or so, it will be seen as a huge success, but if the product becomes too large, it will lose its appeal as a status symbol.